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Insolvency - BIA - Bankrupt as Trustee. Sirius Concrete Inc. (Re)
In Sirius Concrete Inc. (Re) (Ont CA, 2022) the Court of Appeal considers a trust/unjust enrichment issue where a debtor to the bankrupt paid a large sum to the bankrupt just prior to bankruptcy:[14] Property of the bankrupt divisible among creditors does not include property that the bankrupt holds in trust for any other person: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”), s. 67(1)(a). It is well established that unjust enrichment, arising from certain types of debtor misconduct prior to bankruptcy, may impress funds with a constructive trust in favour of a third party and that the successful assertion of a constructive trust means that the property subject to it does not form part of the property of the bankrupt that vests in the trustee under s. 71 of the BIA: Credifinance Securities Limited v. DSLC Capital Corp., 2011 ONCA 160, 277 O.A.C. 377, at paras. 33-37.
[15] According to Lloyd W. Houlden, Geoffrey B. Morawetz and Janis P. Sarra, Bankruptcy and Insolvency Law of Canada, loose-leaf (2022-Rel. 6), 4th ed. (Toronto: Thomson Reuters, 2009), at para. 5-17:Constructive trusts may apply in bankruptcy. If, in a bankrupt estate, the requirements for a constructive trust are met, the beneficiary of the trust will receive payment out of a fund that would otherwise form part of the assets of the bankrupt estate: Barnabe v. Touhey (1995), 1995 CanLII 1672 (ON CA), 37 C.B.R. (3d) 73, 26 O.R. (3d) 477, 10 E.T.R. (2d) 68, 1995 CarswellOnt 167 (C.A.). [16] Similarly, in 306440 Ontario Ltd. v. 782127 Ontario Ltd. (Alrange Container Services), 2014 ONCA 548, 384 D.L.R. (4th) 278, at para. 24, this court stated:Because a constructive trust is a proprietary remedy, it carries with it certain benefits that do not attach to personal remedies. Those benefits include the removal of the property from the estate of the bankrupt, effectively trumping the priority scheme under the bankruptcy legislation: Peter D. Maddaugh and John D. McCamus, The Law of Restitution, loose-leaf edition (Toronto: Canada Law Book, 2013), at para. 5:200. [17] We see no reason why, in law, the facts asserted by Ayerswood could not give rise to a constructive trust as a remedy for unjust enrichment.
[18] To establish unjust enrichment, a claimant must show an enrichment, a corresponding deprivation, and the absence of a juristic reason: Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303, at para. 37. The payment to Sirius by Ayerswood on March 1, 2019 would meet the requirements of a benefit and a corresponding deprivation. It is not clear that the existence of a contract would constitute a juristic reason, given that on Ayerswood’s evidence, the payment was procured by deceit and a breach of the duty of honest performance, and the amount paid was not owing.
[19] Where an unjust enrichment is established, a court may award a proprietary remedy in the form of a constructive trust where a personal remedy is inadequate and the plaintiff’s contribution is linked to the property over which the trust is claimed: Moore, at paras. 90-91. Here, a court may view a personal remedy as inadequate given the bankruptcy, and the funds paid by Ayerswood on the eve of bankruptcy may be traceable into the funds in the trustee’s hands. . The Guarantee Company of Canada v. Royal Bank of Canada
In The Guarantee Company of Canada v. Royal Bank of Canada (Ont CA, 2019) the court notes that a statutory trust, if it meets the basics of trust formation, is exempt from the bankrupt estate:[13] She noted that the constitutional issue of the validity of provincial statutory trusts in bankruptcy had been resolved by the Supreme Court of Canada in British Columbia v. Henfrey Samson Belair Ltd. That case held that trusts established by provincial law that meet the general principles of the law of trusts will be excluded from the bankrupt’s estate pursuant to s. 67(1)(a) of the BIA. It is common ground that those principles are certainty of intention, object and subject matter. And makes the following comments on statutory trusts:Statutory Trusts
[18] As a preliminary matter, it will be helpful to define the terminology involving statutory trusts. In Henfrey, McLachlin J. referred to a “deemed statutory trust”: p. 34. A “deemed statutory trust” is a trust that legislation brings into existence by constituting certain property as trust property and a certain person as the trustee of that property. The legislation purports to deem the trust into existence independently of the subjective intentions of or actions taken by the trustee. For example, the legislation at issue in Henfrey, s. 18 of the Social Service Tax Act, R.S.B.C. 1979, c. 388, established that a merchant who collected sales tax was “deemed to hold it in trust” for the provincial Crown. Deemed statutory trusts may be in favour of either the Crown or private parties: GMAC, para. 14. The subject matter of deemed statutory trusts also varies. Some statutes establish a trust over specific sums of property owing to or received by the trustee. In contrast, other statutes purport to establish a general floating charge over the assets of the trustee for the sum of the trust moneys.
[19] Even if a statute does not deem a trust into existence, it may impose a “statutory trust obligation,” namely an obligation on a person to hold in trust certain property: GMAC, paras. 13, 17, 21-22. Statutes that create deemed statutory trusts often also impose statutory trust obligations, such as an obligation to segregate the trust property or hold it in a trust account: GMAC, at para. 17.
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